By Cassie Fish, CassandraFish.com
Any remaining optimism has vanished as deferred live cattle futures plummet, taking feeder cattle with them as feeders drop limit down. Today’s close-out losses and prevailing disappointment have trumped tight feeder supplies for the time being. Truly a sky-is-falling break today as red ink surfaces everywhere, from equities to crude oil to grains to hogs. Deferred futures are near the July low.
Fear is more powerful than any other emotion when it comes to trading and the risk-off environment is ripe with it today. The economic problems in Asia are very real but unfortunately no one knows how serious or for that matter, the extent of impact on the beef industry.
The cattle feeding industry is taking a beating from all sides this week and 2015 has turned out to be a bust to many. Some of the problems impacting cattle prices are connected to the Asia economic downturn, like horrible hide exports and lousy beef exports. Others problems exist due to declining bargaining position with packers as the cattle industry seemingly migrates to a formula-based model similar to the hog industry.
HFT Ruling the Intra-day Trade
Next, the cattle feeder has to deal with a significant change in the futures trading environment. According to comments made at the RJO Regional Grain/Oilseed Outlook in Sioux Falls, SD yesterday, a whopping 80% of the futures volume for corn, oilseeds and wheat is made by High Frequency Traders (HFT). Though no comparable numbers have been quantified for livestock futures, suffice it to say it’s a lot and more than enough to distort the action significantly, making it even more challenging to sort out the noise from price discovery.
But humans are creatures of habit and folks still try to make sense of futures market action, and the violent and volatile nature that has become commonplace only increases anxiety and the sense of powerlessness felt by many.
Small Numbers Not Mattering Enough
The July U.S. cattle slaughter was the smallest since 1963 and production the smallest since 1994 yet only loins and ribs are premium to a year ago currently. The chuck and round are struggling along with domestic 90s, swamped by imports.
Next week, boxes are expected to top and experience their normal seasonal correction into the third week of September. On the cattle side, this week saw a very big transfer of ownership from the cattle feeder to the packer at very profitable levels for the packers and at a loss for the feeder. Kills are creeping up, possibly 545k this week and 548k next week.
But today, cattle fundamentals really don’t matter much as cattle futures are swept up in the global weakness.
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A Handbook for Ranch Managers. In keeping with the “holistic” idea that the land, the livestock, the people and the money should be viewed as a single integrated whole: Part I deals with the management of the natural resources. Part II covers livestock production and Part III deals with the people and the money. Not only would this book make an excellent basic text for a university program in Ranch Management, no professional ranch manager’s reference bookshelf should be without it. It is a comprehensive reference manual for managing the working ranch. The information in the appendices and extensive bibliography alone is worth the price of the book.
You might also be interested in the supplement to this Handbook: Planned Grazing: A Study Guide and Reference Manual.